Saudi Arabia aims to expand pipeline to reduce oil exports via Gulf

Saudi Arabia aims to raise the capacity of its east-west pipeline by 40 percent in two years so more of its oil exports can avoid passing through the Strait of Hormuz, the energy minister said on Thursday.

Khalid al-Falih also told Reuters that importers should, as a first immediate step, secure shipments through the strategic waterway at the mouth of Gulf, after attacks on oil tankers in the area and the seizure of a British-flagged ship by Iran.

Falih said that the international community should take swift action to protect oil supplies and secure the Strait, through which about a fifth of the world’s oil passes.

Oil importers “have to do what they have to do to protect their own energy shipments because Saudi Arabia cannot take that on its own,” he said in an interview during a visit to India.

The United States, which has imposed economic sanctions on Iran to halt its exports of oil, is trying to rally support for a global coalition to secure Gulf waters. Britain has called for a European-led naval mission to protect shipping.

“India also needs to do its part in securing free navigation of sea links transporting energy to the rest of the world,” Falih said after meeting Indian Oil Minister Dharmendra Pradhan.

India has deployed two warships in the Strait.

Saudi Arabia already exports some of its oil through the Red Sea using a 1200-kilometer pipeline that runs from the east of the kingdom, where much of its oil production is based, to the Red Sea port city of Yanbu in the west.

Saudi Arabia aimed to maximize exports through the 5 million barrels per day (bpd) east-west pipeline if required, he said.

“We are hoping to increase it to 7 (million bpd),” Falih said, although he said expanding capacity of the east-west pipeline, called Petroline, would take two years.

Routing oil supplies away from the Strait is more difficult for countries like Kuwait and Iraq, whose only coastline is on the Gulf, or the United Arab Emirates and Iran, which have major oil export terminals on the Gulf.

But exporters are looking at alternatives, such as Iraq which plans to export more oil to Turkey’s port of Ceyhan and to build new pipelines to ports in Syria, Lebanon and Saudi Arabia.

In his talks in India, al-Falih said Saudi Arabia was prepared to supply additional oil to India.

He also said state-run Saudi Aramco’s talks about buying a minority stake in the refining assets of India’s Reliance Industries had not stalled, after sources told Reuters this week they had hit a roadblock.

On Saudi plans to list Aramco, al-Falih said the kingdom was “absolutely ready” for launching an initial public offering, adding that the share sale was “possible” next year depending on global economic and financial conditions.

The minister said global oil demand was reasonably healthy but was lower than estimates had put it at the start of 2019.

The International Energy Agency is revising down its 2019 global oil demand growth forecast to 1.1 million bpd and may cut it again if the global economy slows further amid a US-China trade spat.

“I am not concerned at all,” Falih said, adding that the US-China trade row was not “impacting demand to a measurable degree” as Asia oil demand was healthy.